Free Market Depicting the Impact of This Change - Assignment Example

Introduction The first part of this assignment deals with “Transition Economies” and explores the reasons for joining in the “Free Market also depicting the impact of this change. The 2nd essay describes “Advantages and Disadvantages of European Monetary Union”, while the 3rd essay elucidates the “Corporation Social Responsibility”, exploring the concept of social responsibility from ancient times to modern day corporations. Why do you think the ‘Transition Economies’ are choosing to move toward a more ‘free market’ approach? The pace of centrally planned economies to venture into free markets has took almost ten years with a result that one group of countries are reaching its target, while some are bracing up and yet others are still following the race to free markets. And as result today the Central and Eastern European block and the Baltic States are knocking at the doors of European Union (IMF, 2000). The centrally planned economies existed in Soviet Union. The problem in the central economies was its inability to generate wealth and raise the living standard. The production and distribution would come from central government, deciding for the states, what to produce and how to distribute in what quantities. The workforce was assumed to be fully employed and salary was predetermined, regardless of the potential of the worker (Greenspan, 1997). In these economies there was no effective market clearing mechanism, the result was huge surplus of unwanted goods by population on one side and shortage of goods, which were in needed. This imbalance in demand and supply led to rationing the quota, as the quantity of the goods was limited. As production and planning was followed through state orders rather than by market demand, the finance had no control over the actions that were remotely planned by the center without following the market rules (Greenspan, 1997). In such economies, there was nothing like credit, interest or market values, as every thing belonged to the state. Due to the lack of a developed financial system, these economies as a consequence wasted their resources as much as much five to seven times more than Western European economies, yet without any productive result, which led to the dismemberment of Soviet Union and the rest of Eastern Bloc in early 1990s (Greenspan, 1997). REASONS FOR GOING FOR FREE MARKET These countries started the free market polices for the following reasons (IMF, 2000) The free market economy allows prices to be determined by demand and supply with little market barriers. The macroeconomic stabilization process after initial burst of high inflation stabilizes the inflation and allows the liberalization to take place, which keeps a tight control over the state budget and growth of money allowing the growth of progressive fiscal system to develop. The privatization process creates a strong financial sector allowing the companies to produce the goods, which are in demand in the market. The presence of a legal and institutional reforms establish the rule of law by state leading to the creation of competitive policies. These economies had no financial infrastructure; they had to develop their economies from scratch allowing liberalization, macroeconomic stability and market mechanism, despite the surmounting hurdles in their ways. It was thought by these states that the hardship phase will be temporary and will be vanish with time (Greenspan, 1997). This transition started liberating their economies, and in initial phase went into full swing of inflation and reached 450 percent a year in Central EU States and nearly 900 percent in the Baltic states, but stabilized by 30 percent in later years (IMF, 2000). The experiment of free market in the transition economies has not been a real success as it was thought to be; however according to IMF, the transition economies became more democratic with greater freedom of speech and expression. And now the countries of Central Europe, such as Czech Republic, Hungry and Slovakia are developing very fast and are earning US$ 3500 to $9900 per captia with trade and commerce openness which was missing in the earlier phase of their economies (Greenspan, 1997). The transition economies in Europe were built on the rubble of communism and now market economies are firmly taking root, improving the legislation, competition and financial regulation in the market. This reformation process has been now been established early rather than later. As a result the Central European and Baltic states are now in the ranks of middle-income countries and are catching up with the richer countries of EU countries. However there is the dilemma of re-structuring their fiscal policies to create greater stability to be in harmony with the other European States (IMF, 2000). ADVANTAGES AND DISADVANTAGES OF EUROPEAN MONETARY UNION There are many advantages and disadvantages of EMU as described below. ADVANTAGES (BBC News, 2005) UK companies at present are spending 1.5 billion UK pound in selling and buying foreign currencies for business purposes. The EMU will save currency transaction cost making business easy and cheap within EU. Often EU firms find it hard to calculate the prices of goods and services across the European states. The EMU will create uniformity in prices leading to greater business and stability across the region. The EMU provides stability to the currency eliminating worries and allowing companies to invest all over EU with a peaceful mind. One single currency will give make the trade and economy more effective and operations swift allowing companies to use one single currency in one single market, removing the hurdle of multiple currencies and multiple markets. Among all the currencies, the two major currencies are American dollar ($) and Japanese Yen, which are accepted worldwide. Formation of one single currency will bring EU currency between the top two currencies of the world creating a better competition. The EMU other than being monetary project is also a political step leading Europe to a greater integration, preventing war or aggression internally and making it stronger politically as well. It will not allow the boost in trade, but it will also bring economic benefits after the removal of exchange rate fluctuations, allowing companies to establish business at lower cost with increased profits. At present there are different inflation rates in different European countries, EMU will lead consistent inflation rate across the region and will tightly control the increase in inflation creating stability in the region. DISADVANTAGES The system is not stable. In 1980 UK refused to join in ERM that it would not be possible to maintain exchange rate stability, as UK inflation rate was higher than Germany. However after 1990s, when UK joined ERM, there has been stability in the European currency, while in 1992 UK and Italy were forced to leave the system, which shows that this system is not as stable as it is considered (Artis, 1992) . The trade benefits have been over estimated and there are too much expectations attached, which are perhaps hard to gain. And the reason is that perhaps the system is not yet as stable and it needs more time to become mature. As long as the present system cannot gain stability, it would be hard to have ideal trade benefits (Sandholtz, 1993). It is often argued that creation of a single independent bank is unfair practice and governments must have control over monetary institutes. All democratic governments come into power through an election, and lack of this control over financial institutions will put sovereignty of independent states in jeopardy. (Artis, 1992) One ERM state can create deficit for the other state pushing the neighboring states to downward leading to inflation as a result the state will resort to deflation and deflating the currency (Sandholtz, 1993). Businesses have a duty to fulfill objectives that stretch beyond the simple well-being of the organisation….”(D. Patton). Discuss in the context of the notion of Corporation Social Responsibility (CSR). The idea of social responsibility has been in all human societies through out the history in one way or other. It has been remained since than a part of our society, despite change in time and norms (Jerry, 1989). People often question the behaviour in which businesses are conducted. Even during the construction of pyramids, it was in vogue. Countless scribes have been found advising managers to stick to the ethics and right ways emphasizing the need for social responsibility again and again (Jerry, 1989). In Babylon examples of production and wage payments were also found. Chinese writer Mencius also mentioned the need and system for effective management, concepts similar to the Greeks, which in later years were adopted by guilds and unions (Jerry, 1989). The corporate social responsibility has been gaining momentum in recent years and has been accepted by the corporate executives and officials that, a corporation has a responsibility that goes beyond money, interest and stockholders (Zeinab and Karake, 1999). This approach is a long way from the earlier thinking when managers only have to concentrate on economic results for their respective corporation. In today’s world, the managers have to weigh, legal, ethical, moral and social impact of their decisions The responsibility often lies within HRM (human resource management) as described below (Zeinab and Karake, 1999). Complying with the law, Abiding by moral and ethical standards, Philanthropic giving. Today society believe that business have a moral obligation to correct the social problems and contribute in fixing those dilemmas which a society face. Businesses normally have corporate strategy integrated within their over all business strategy, the burden of which lie at the lower and middle level management to implement (Jerry, 1989). Margaret Stroup and Ralph Neubert stated that social responsibility is “doing good at reduced profits”. Corporations are realizing that in order to survive they have to create doing good strategies in the competitive world, as it will not only enable them to be social responsible, but will also make them successful in the long term (Jerry, 1989). Social responsibility should be handled as a corporate investment to create a long-term profit, which should not end up as corporate loss. This fulfillment of social responsibility on one side creates a positive corporate image, luring new worker to join in making communities a healthier place to live in. It also increases corporate visibility creating favorable conditions for its survival with improved respect among public and gaining more customers (Zeinab and Karake, 1999). Some times governments fail in solving a problem, naturally the responsibility falls at corporate shoulder, as they have the means and money to address the issues (Jerry, 1989). Today’s business strategy is "‘to do good in order to do well” should be the strategy, which mean converting social needs into beneficial business opportunities, as William Noris, the founder and CEO of Control Data Corporation has mentioned that” it is the purpose of business to do well by doing good”. Some examples are Johnson and Johnson and Delta Airlines like companies have joined to do good by doing good bandwagon fulfilling their social responsibilities (Jerry, 1989). Reference Greenspan.A. (1997). The Embrace of Free Markets.Wilson International Center for Scholars, New York. Transition Economies: An IMF Perspective on Progress and Prospects (2000). Retrieved December 23, 2005 from www.imf.org BBC News. Emu: the advantages (2005). Retrieved 22 December, 2005 from www.news.bbc.co.uk/1/hi/special_report/single_currency/66473.htm Artis.M (1992), The Maastricht Road to Monetary Union. Journal of Common Market Studies, Vol.30. Sandholtz, W. (1993). Choosing Union: Monetary Politics and Maastricht’ International Organization, Vol.47. Jerry.W. (1989). Corporate Social Responsibility: Guidelines for Top Management Quorum Books. Zeinab A and Karake-S (1999). Organizational Downsizing, Discrimination and Corporate Social Responsibility, Quorum Books. Read More